A surge in international contracts swelled the order book at engineering conglomerate Larsen & Toubro Ltd (L&T) in the December quarter, even as domestic orders lost steam at India’s largest engineering and construction company.
A surge in international contracts swelled the order book at engineering conglomerate Larsen & Toubro Ltd (L&T) in the December quarter, even as domestic orders lost steam at India’s largest engineering and construction company.
Robust growth on the global front bodes well for the conglomerate, as domestic infrastructure orders typically slow down around a general election, which is likely to be held in the June quarter.
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Robust growth on the global front bodes well for the conglomerate, as domestic infrastructure orders typically slow down around a general election, which is likely to be held in the June quarter.
L&T expects order inflows to grow more than 20% in FY24 against its previous guidance of 10-12%, said chief financial officer R. Shankar Raman. The company also expects to beat its 15% revenue growth guidance for the year.
On Tuesday, L&T reported a 19% on-year growth in its consolidated revenues to ₹55,128 crore in the December quarter, while profit grew 15% on-year to ₹2,947 crore.
Led by its West Asia operations, L&T’s international order inflows during the third fiscal quarter surged 230% over the previous year to ₹50,600 crore, while domestic order inflows almost halved to ₹25,400 crore. The company booked total new orders of just under ₹76,000 crore during the quarter, a 25% increase year-on-year.
“Domestic orders de-grew whereas international orders grew significantly to keep the overall order inflow in good shape,” Raman said in a post-earnings media call.
“The momentum in the Middle East continues despite the friction in West Asia,” he said, adding that countries in the region like Saudi Arabia are diversifying beyond crude oil, which will ensure continued investments. Order inflow is a key metric for L&T, giving an outlook on the company’s future revenues.
The surge in international orders has meant that the company’s consolidated order book, at just under ₹4.7 trillion as of 31 December, was 22% higher compared to a year ago. Share of international orders in this increased by more than 12 percentage points over the previous year to 39%.
The company remains upbeat about the long-term prospects of both India and the Middle East. In the domestic market, the government’s push for infrastructure-led growth will continue to generate new business for L&T, Raman said. The infrastructure segment accounts for half of the company’s consolidated top line.
Meanwhile, in the Middle East, the push of various countries to diversify beyond oil is resulting in a conducive business environment for engineering and construction companies, Raman said. “And this conducive environment has also helped our quarterly performance for the October-December quarter,” he said.
During the quarter, earnings before interest, tax, depreciation and amortization (Ebitda) grew 14% on-year to ₹5,759 crore. However, its Ebitda margin fell by 0.5 percentage point to 10.4%. The company expects margins to improve from the next quarter as legacy projects—undertaken two-three years ago—get finished, Raman said.
Among key business segments, its largest, the infrastructure segment, logged the highest year-on-year growth in revenue at 27%. The energy projects and hi-tech manufacturing segments reported 24% and 23% on-year revenue growth. The IT segment revenues grew 10% year-on-year. The financial services segment lagged with just under 2% revenue growth.
Raman attributed this to the segment’s change in focus to retail lending from wholesale loans. Nearly 91% of the company’s lending book is in retail assets, up from 40% a few years ago, which has helped the company improve its net interest margins, he said. Subsequently, segment profit has improved 41% year-on-year to ₹640 crore.
L&T expects to end the year with an order book closer to ₹5 trillion, which will provide a “tailwind” in the coming quarter when orders slow down due to the general election.
Ashish Modani, vice-president and co-group head for corporate ratings at Icra, said the election is unlikely to have any material impact on the execution momentum and revenue booking of construction firms.
“There could be temporary deferment in new order awarding once the model code of conduct is in place. Overall, we continue to anticipate that the government will persist in bolstering capital outlay for infrastructure in the budget,” he added.
Separately, L&T announced an investment of ₹2,774 crore in its Hyderabad Metro Rail unit to repay expensive loans including interest to reduce the debt and interest burden of the company.
Shares of L&T closed 2.02% lower at ₹3,633.4 on the BSE on Tuesday compared to a 1.11% drop in Sensex. The earnings were released after market hours.
Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
